Bankruptcy Terms and Definitions

Asset
An economic resource or item owned by a business that is expected to benefit its future operations.

Skeleton filing
Term used at bankruptcy courts to describe a bankruptcy filing in which not all the necessary forms have been filed. Certain courts allow a case to commence if only certain important forms are filed so long as the balance of required forms are forthcoming within a certain period of time.

Chapter Seven
Liquidation proceedings; generally assets are sold by a trustee and the company ceases operation. (Individuals may file Chapter 7 also.)

Voluntary bankruptcy
Bankruptcy filed by the debtor itself; data from the U.S. Administrative Office of the Courts subdivides bankruptcies into voluntary and involuntary.

Straight bankruptcy
An informal term for a Chapter 7 bankruptcy or liquidation; used more commonly to describe liquidation before the Bankruptcy Reform Act of 1978.

Absolute priority
The order of payment to the different classes of creditors mandated by the Bankruptcy Code. In theory, claims with higher priority are paid in full before other claims receive anything

Chapter Twenty
An unofficial term describing the filing of a Chapter 7 proceeding followed by a Chapter 13.

Reverse leveraged buyout
When a company that was a leveraged buyout restructures its (usually unmanageable) debt by issuing new equity (usually in exchange for some or all of the outstanding debt incurred during the original leveraged buyout).

Avoidance power
The power of the court to invalidate certain obligations or transactions undertaken by a debtor prior to filing bankruptcy.

Chapter Ten
A new chapter of the bankruptcy code proposed in 1992 and pending in 1993. Chapter 10, like Chapter XI of the old code, is designed for small business reorganizations.